For around 24 hours Anglo-Saxon shareholder capitalism reared its ugly head in Germany. Then reason prevailed

A FAILED courtship, followed by an attempted rape--and now an engagement. Germany's biggest steel companies, Krupp-Hoesch and Thyssen, are staging the country's most intriguing corporate tussle for decades. Just one day after the announcement on March 18th of an unprecedented DM13.6 billion ($8.1 billion) hostile takeover bid by Krupp for Thyssen, the two companies announced an equally unexpected truce: by the end of the month they hope to have forged a joint venture.

The episode includes all the most remarkable elements of modern German business life: the urgent need for industrial restructuring; a notoriously constipated system of corporate governance; the increasing role of outsiders in the financial system; the intimate (and unhealthy) involvement of politicians in business; and--perhaps most telling of all--the system's uncanny ability to fudge a consensus out of even the most promising row.

At first sight, Thyssen should have been stalking Krupp, and not the other way round. Thyssen is bigger (with sales of DM38.7 billion in 1996 compared with DM28 billion for Krupp). Its market capitalisation is DM10.8 billion, compared with Krupp's DM5.9 billion. As well as steel, its interests sprawl from lifts to mobile telephones. Although both companies' net profits fell last year, Krupp's dropped more by 48% to DM336m, compared with a 37% fall to DM654m at Thyssen.

In international terms, neither company is a spectacular performer. Together, they would form the fifth-biggest steel company in the world, with combined sales of DM63 billion. Two-thirds of their businesses overlap. Closing the least efficient bits would save lots of money. By using Krupp's coking plant, for example, Thyssen would be spared the DM1.7 billion cost of building a new one of its own.

The idea that the two companies should co-operate is not new: it was first suggested by a government-appointed panel in 1983. Three joint ventures already exist, making specialised products such as tin plate and stainless steel. Talks on more ambitious co-operation had been going on discreetly for some months, but broke down earlier this year. Thyssen's share price then started marching smartly upwards (see chart nearest)--possibly because Krupp was acquiring shares. On March 18th, Krupp announced that it was bidding DM435 for Thyssen shares, a generous 60% above their value at the end of last year.

The idea of a takeover battle, with outside shareholders deciding Thyssen's fate (rather than the usual deal carved up by banks and other large shareholders), provoked uproar. Thyssen's boss, Dieter Vogel, condemned Krupp's “wild west tactics” and declared that the move would cost tens of thousands of jobs. Thyssen workers went on strike, and hurled eggs and tomatoes at Gerhard Cromme, head of Krupp, as he tried to explain that realising synergy was not synonymous with mass sackings.

This was to be expected. German workers have the wind in their sails after two big victories in the past fortnight, in which they forced the government to spend an extra DM25 billion on the construction industry and to postpone cuts in subsidies to the country's deeply unprofitable coal mines. The Ruhr area, where both companies are based, already has high unemployment (around 18% in some steel towns).

What was less expected was that Krupp would switch tactics. Even the squashiest tomatoes had seemed unlikely to deter Mr Cromme, the only businessman in Germany to have successfully pushed through a big hostile takeover, of the Hoesch steel company in 1991. That deal, which resulted in a quarter of the workforce losing their jobs, had been bitterly opposed by workers and local politicians.

This time, however, a local politician, Johannes Rau, the Social Democrat who leads the state government of North-Rhine Westphalia, seems to have persuaded Mr Cromme to pause for thought and enter talks with Thyssen. By March 28th, the two companies will try to work out a “sustainable business concept” for their steel businesses. If not, battle will recommence.

If the companies merely pool their steel businesses, it will be some way short of the “merger made in heaven” that analysts such as Terence Sinclair, of Salomon Brothers, an investment bank, had been hoping for. He estimates that the steel business makes up 60% of the available synergies. The two companies' poorly performing factories making car parts and other metal products would not be merged. And the current fairly sluggish sorting-out of Thyssen's peculiarly diverse collection of 336 businesses would not be speeded up.

On the other hand, a limited deal would still do some good--especially for Krupp, which, according to Salomon Brothers, lost DM208m on the 4.9m tonnes of steel it produced last year, compared with the DM242m profit that Thyssen made on its output of 9.3m tonnes. A joint venture would give Thyssen's managers a chance to sort out Krupp's steel business: an unpleasant experience, but probably preferable to being taken over.

For Krupp, a full-scale takeover would be a risky affair. It has raised an impressive war chest: two of its advisers, Deutsche Morgan Grenfell and Dresdner Kleinwort Benson, have provided, through their parent commercial banks, a credit line believed to be worth DM18 billion. But this money would have to be paid back. Selling Thyssen's 30.1% stake in Germany's third mobile-telephone network, E-Plus, would raise around DM3 billion, but other assets such as Thyssen's property portfolio, which has a nominal value of DM3 billion, would be more difficult to liquidate. Mr Cromme may well decide that, this time, discretion is the better part of valour.